Nesheim Online Blog

MANAGING YOUR STARTUP BOARD
Second in a series –

Who? Choose and Build Your Board Members Carefully

Your first board management challenge begins on day one: Wisely picking your first board members.

The board is instantly created on the day of incorporation: Depending on your state of incorporation, it typically consists of just one person – the CEO.  Experienced startup founders will occasionally add one more of the (if any) co-founders, plus someone they know well and highly respect, thus sticking to an odd number.

First Expansion. First timers often start to get thoughts about enlarging their board of directors.

• First Caution: Think a long time before you add a friend to your board.
• Second Caution: Be careful before you add a person inexperienced with business.
• Third Caution: Be slow to add a stranger.

I’ve witnessed painful fights, sometimes costly legal battles when people had to be kicked off the board. It killed the life of a promising software startup I observed. The brothers feuded from day one on everything. They came to physical blows. And the CEO fired his brother in a painful scene. Energy left the CEO and depression set in. Later the company closed its doors.

Time Limits. One preventive measure (avoid officially firing a board member) is to set a limit on the number of years a person may occupy a seat on your board of directors.

Number & Size of Board. The number of members should be kept to an odd number so that decisions (formal voting) can be made, so that the company is not stalled during disputes. More than eleven board members is unwieldly, seven is considered the maximum for startups. Occasionally new investors will require visitor privileges, but they cannot vote.

• Add an Independent. It’s wise to have one seat on the board filled with an “independent” person, typically experienced with startups, boards of directors and if possible your industry. An “independent” board member can bring high value to your company in several ways: some bring technology savvy; others bring a network of contacts with potential strategic partners. They are street smart about what investors do on boards of directors.
  
  
• Human Guidance. And some board members bring special psychological and behavioral skills with them. A few are skilled, professional counselors. They typically become close to the CEO and share in private the struggles that are inevitable. The wise will get to know you the CEO well enough so you trust the person to give you the frank assistance needed when it’s time for your behavior to be adjusted.

Investors on The Board. More people will be added to (“seated” on) the board when you raise capital from sources outside the company. Investors want someone to watch out for their invested money while your startup is progressing, They will complicate your life as company leader, decision maker and risk taker.

Your board will add one new member for each round of financing. You will expand to three after your first round. And to four after round number two and so on. Serial entrepreneurs will simultaneously add another board member, often a company officer. Or it might be another independent. That is to keep a balance between investors and employees. That five-man board often remains for a few more years until a large third round is completed.

• Expect More Pressure. Be prepared to experience your expanded board pushing you to do things you had not planned on, things you do not want to do. That’s how life works in startups, particularly when aggressive (“sharp elbows”) angels and VCs are on the board (think before you take their money). This makes each board meeting increasingly challenging.
  
  
• Treat your board as family members, not dictating bosses whom you are in combat with. Your board of directors is not your authoritarian parents. Family members can help you (or get in the way), so carefully seek their wisdom, and use it. Include them when you wonder if you should embark on a new direction or make a critical decision. They can do more when you give them time to think. Then they'll thank you and keep rooting for you. When you learn to do this, they will appreciate how wise you are and contribute a very helpful element to executing your business plan.
  
  
• Pick people, not venture capital firms. When looking for money from venture capital pools, research reputations of angels and venture firm Partners before engaging in deal discussions. When your intuition signals a venture investing person is not great to work with, find someone else with the money you are seeking. Life is too short, too hard, for you to have to work for a decade or two with a person you detest, someone who thinks you are making all the wrong decisions.

Startups need extra encouragement, just like a growing child. Family wars create circumstances that warp the child as it grows up. Learning to wisely select board members for your startup is one of the most valuable elements of building a great company.

I wish you The Bests on your Adventure!

JOHN

MANAGING YOUR STARTUP'S BOARD OF DIRECTORS - First in a series

Experienced startup leaders have learned the hard way: “Manager your board of directors – or it will manage you.

As soon as you have serious investors, they will require a seat on your board of directors. Then you, the founder CEO, have a new boss: The board of directors. Is that true or false?

True: The legal hierarchy places the board of directors above the Chief Executive Officer and reserves all rights except for those specifically delegated to the CEO in writing (the bylaws of the corporation). Thus, the CEO has to get prior permission to act on many more things than first-timers might expect.

False: The CEO is running the company, is expected to lead it to success (or ruin) and the power is in his hands. The bylaws delegate almost all the important power to the CEO. Thus, the CEO does what has to be done and informs the BOD after the fact.

One of your greatest resources can be your board of directors. Or it can be a source of stupidity and constant trouble for you. I watched often as Dick Kramlich, co-founder of iconic New Enterprise Association, brought CEOs access to a vast network of contacts. In addition Dick consistently demonstrated uncanny insight as I watched boards struggling with life or death strategic decisions for startups. And I recall how amazed I was the time the startup’s seed round angel investor, an MD brain surgeon, insisted on understanding how the microprocessors worked inside the computers the CEO had included in the annual budget that we were to approve that night. Argh!

The prime responsibility of the board members is to look out for the best interests of the shareholders of the startup. That usually is in concert with seeking to build an amazing new enterprise. But there are times when big encounters trigger opposite and very strong sides.

I’ve found those experienced with startup struggles focus on how to support the CEO and thus contribute to building an amazing business. They respect how tough a job it is to be a leader of a fledgling business. Others range from useless to destructive. I’ve been on boards in Silicon Valley where a single investor thought his every decision was brilliant – yet the opposite was painfully obvious to all but him. The CEO and the rest of us hoped he would never show up.

So be sure to start by picking your board members wisely. And use them well. Seek their wisdom and perspective. Treat them with respect. Learn how to get the best from them. When you do, your board meetings will be less fearful and more richly rewarding. If you don’t, you’ll dread attending the next board meeting. And you’ll miss the opportunity to recruit and put to work talented people who can do wonders building your startup, help execute your business plan, and enable you to anticipate and manage the big moments you are going to encounter.

I’ve found that managing the board of directors does not just happen. Nor is it done by investors or the independent person on your board. You – yes you – are the one who must do it. Your objective is to get the most out of your board: things that will help your startup prosper. A resourceful board can be one of the key elements of building your unfair competitive advantage. Managing it is what serial entrepreneurs have learned to do well.

I wish you The Best on your Adventure!

JOHN

Startup Builders Focus Their Precious Time on What’s Important: Seventh of 7 in the Series on Startup Managers

Startup plan builders hate waste of time. They constantly work on focusing – on what’s important and what isn’t. I found they managed highly disciplined calendars, yet maintained flexibility and were swift to respond to encounters that popped up – good and bad.

1.     Focus the Business

Over decades I could see that startup veterans consistently begin by deciding on how to focus the business – first timers struggled greatly with that. Veterans had learned that great startups succeed focusing on doing one thing best – so customers rave about what they offer.

2.     Focus Your Priorities

Focus is also about setting priorities. I noted that effective startup builders constantly re-prioritized their to-dos daily, hourly. Mentally juggling while getting each task done.

3.     Focus Your Calendar

I’ve found startup builders immediately get control of their calendar – they drive it, instead of letting it driving them crazy. They lock in firm days for re-occurring group meetings each month

4.     Focus Your Days

Then the veterans focus their own weeks. They begin by blocking time each day to do solo work – they make meetings with themselves, and do not interrupt them.

5.     Focus Your Meetings

Then the builders focus their choice of singular meetings, selecting only just the important ones. With the monthly and solo meetings in the calendar taking up space, the inevitable one-time group meetings must be fitted into the remaining space.

6.     Focus Your Day.

Noteworthy is a daily discipline I watched work well with startup veterans. They ended each day by choosing the most important task to complete the next day. Starting with a too-long-to-do list, they sorted it (perhaps into Covey’s Quadrant), picked from the most important tasks, and labeled them as “As”. Then they picked one: it become their “A1” for the next day. It’s a focus tool that made them very effective.

7.     Calendar Rhythm

I could tell when a startup was managing its growth well as I entered the room. I could see and even feel the rhythm. Its calendar regularity was evident as people actively and quietly working, exuding confidence. They had set into motion a cadence beat that kept the growing number of employees on the same focused path. They were confident of weathering inevitable crises that would come.

That’s how startup builders focus on what’s important.

1. Startup Managers Are Special
2. Startup Managers Work in Turmoil.
3. Startup Pivot Managers Have Guts
4. Startup Recruiting and Organizing
5. The Marketable Startup CEO
6. The Floundering Startup Founder
7. Startup Builders Focus on What’s Important

I wish you The Best on your adventure!

JOHN